Procter & Gamble (PG 0.65%) and Unilever (UL 0.47%) are global consumer staples giants and direct competitors. While there are material differences between their product portfolios (Unilever sells food, for example, while P&G does not), they have some interesting similarities. One of them is the involvement of activist investor Nelson Peltz in each company's corporate turnaround efforts. Here's why that should be important to investors.
The first turnaround
Back in 2017, P&G had a very public fight with Nelson Peltz as it sought to keep the activist investor from joining its board of directors. The company won the fight (barely, by some estimates), but eventually worked out a deal with Peltz that let him join the board.
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Peltz pushed for some fairly common-sense changes, including slimming down the company's bureaucracy and tying pay to performance. The company was also in the process of jettisoning some of its smaller, less important brands so it could focus on its largest and most profitable offerings. Basically, the consumer staples giant was working to simplify and focus its business.
While Peltz wasn't involved in every aspect of the company's overhaul, he was right in the thick of the process. It worked out very well for investors, with the stock up 65% since the start of 2017, driven largely by improved performance at the company's largest brands, which are now its core focus. Over the same period, Unilever's stock is only up around 24%.
The second turnaround
Now, in 2023, Peltz has left the board of P&G and joined the board of Unilever -- no fight needed this time around -- and Unilever appears to be heading down the very same path that P&G traversed just a few years ago. That's not likely a coincidence.
On the business front, Unilever has been working to reduce the size of management while enhancing decision-making powers lower down in the hierarchy. It has also tried to tie pay to performance. These are the types of things that Peltz has suggested. But Unilever has also been streamlining its portfolio, recently inking a deal to sell its tea business, which doesn't have material growth prospects, and bolstering other areas, like consumer health, that it believes could be long-term growth drivers. That's right out of the P&G turnaround playbook, too.
Unilever estimates that it has 14 brands that each generate 1 billion euros or more in revenue per year. This collection of brands, meanwhile, accounts for roughly 53% of the top line. And, perhaps even more interesting, these brands, as a group, had underlying sales growth of 11% compared to 9% for the entire company in 2022. These are clearly the most important drivers at Unilever and management is increasingly focusing on them.
No guarantees
Can Unilever pull off a business turnaround like P&G did? That remains to be seen and investors cannot overlook that fact that the companies are not the same. Food sales is one difference and the fact that nearly 60% of Unilever's sales come from emerging markets is another. However, it would be hard not to notice that Unilever is using a playbook that worked out very well for P&G investors and, perhaps equally important, Nelson Peltz -- who owns around 1.5% of Unilever's outstanding shares -- is on the board helping to make decisions. Given the generous 3.5% dividend yield on offer from Unilever, the risk/reward balance here seems like it's tilted in favor of a positive long-term outcome.
